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20 April 2011

IPE: Deposit guarantee directive will hurt pension funds


Revisions to the EU's Deposit Guarantee Directive, which protects depositors against bank failures, could damage the interests of occupational pension schemes, the European Association of Paritarian Institutions of Social Protection (AEIP) has warned.

The Directive, described by the Commission as a "safety net" for bank account holders, dates back to 1994. It was subject to considerable stiffening in the light of the financial crisis when a uniform protection figure of €100,000 was introduced. The European Commission proposed amendments to this version last summer. The amendments include a provision, to which the AEIP objects, that excludes "deposits by pension and retirement funds" from the guarantee schemes.

The AEIP also decried the fact that the protection of existing investments will be cancelled in 2015, on the grounds that no protection scheme should be more comprehensive than the amended, new version. However, Article 5 does not prevent Member States from maintaining or introducing schemes protecting old-age provision products and pensions, provided that such schemes not only cover deposits, but also "offer comprehensive coverage for all products and situations relevant in this regards".

The AEIP said the restructuring of the deposit guarantee schemes would make it difficult for its members to comply with regulatory laws regarding the safety of investments. Furthermore, any ban on protection will "introduce further uncertainty within the investment process and may lead to massive dis-investments of instruments with high security today to be invested in instruments with lower security tomorrow".

The AEIP is also opposing the result of the amendment that pension funds might be forced to implement new "cost-intensive monitoring systems" for their portfolios to avoid liquidity and credit risks that currently do not exist, thanks to the existing deposit guarantee schemes. The organisation estimated that at least one new employee would need to be hired by the large pension funds to fulfil the tasks needed to meet regulatory and risk-related requirements. The Brussels-based institution estimated the extra costs for the employee to be as high as €100,000 per year.

The package is now in the hands of the European Parliament's Economic and Monetary Affairs Committee (ECON), which is expected to lead up to passage through a plenary session in June.

National ministers meeting in the Council of the EU are scheduled to consider the matter at about the same time.
 
 



© IPE International Publishers Ltd.

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